Fed and Virus Hold the Cards as Markets Face Unmeasurable Risks
John Authers – Bloomberg
James Carville, Bill Clinton’s political Svengali, is God’s gift to financial commentators. His winning slogan: “It’s the economy, stupid.” His wish for reincarnation: to come back as the bond market, because the bond market “can intimidate anybody.” Those two comments, on their own, have provided the spine to countless financial columns over the last quarter century. These days, however, they may need a little revision. Carville might prefer to come back as the Federal Reserve, because the central bank has now intimidated even the bond market into mute acceptance. And the new catchword: “It’s the virus, stupid.”
What bubble? Millionaires are getting positioned for a strong market in 2021
Shawn Langlois – MarketWatch
If the stock market keeps it up, the rich will, indeed, be getting richer in 2021.
According to the CNBC Millionaire Survey, 70% of households with at least $1 million in investable assets are looking for the S&P 500 to rally at least 5% in the coming year. Almost a third expected double-digit gains. That would be on top of a year that has already seen a rally of almost 14%.
With that in mind, most of the 750 millionaires polled will be adding to their equity portfolios in the months ahead. Only 9% plan to cut back on stocks.
A ‘bull market in complacency’ could stop the stock rally in its tracks
Michael Brush – MarketWatch
Investors seem way too overconfident for their own good. By some measures, sentiment is as high as it was right before the tech bubble blew up in 2000. Yikes.
Meanwhile, potential surprises abound. Any of the five I list below could hit stocks hard in 2021.
You don’t have to go back to 2000 to find precedent for investors being dinged by surprises that tank stocks. Coming into 2020, most of us felt pretty sure we would have another year of nice gains in the stock market. The economy was doing OK, and there didn’t seem to be any major risks on the horizon.
Global stocks slip as new Covid strain unsettles investors
Naomi Rovnick, Adam Samson, Eric Platt, and Thomas Hale – FT
Global stock markets slipped and the price of oil declined after a new strain of coronavirus sweeping through parts of Britain sparked fears over further lockdowns and international travel restrictions. The FTSE All World index fell 0.8 per cent on Monday, its worst day in three weeks. The drop was led by a sell-off in Europe, with the region-wide Stoxx 600 closing down 2.3 per cent and London’s FTSE 100 sinking 1.7 per cent. The declines on Wall Street were moderate by comparison. The S&P 500 slipped 0.4 per cent, clawing back the majority of the losses that had taken it down as much as 2 per cent early in the trading day.
Bitcoin headed for Christmas volatility as 100K BTC options expire
Sam Bourgi – Cointelegraph
Roughly $2.3 billion worth of Bitcoin futures is set to expire on Christmas Day, setting the stage for a volatile week in the cryptocurrency market. In a Monday tweet, crypto data provider Skew reported that 102,200 Bitcoin (BTC) options will expire on Friday. Options contracts allow holders to buy or sell Bitcoin at a specific price, which is known as the strike price. The Friday expiry has notable clusters around the $15,000 strike price and the $20,000 strike price, according to Skew.
Exchanges and Clearing
Hang Seng Proposes Sweeping Overhaul to Hong Kong Stock Index
Sofia Horta e Costa and Jeanny Yu – Bloomberg
Hang Seng Indexes Co. is considering wide-ranging changes to Hong Kong’s stock benchmark that would dilute the influence of its largest companies.
The five proposals include maintaining “a certain number of constituents classified as Hong Kong companies,” according to a 16-page consultation paper released Tuesday. Hang Seng is also considering increasing the number of companies to between 65 and 80, as well as capping weightings at 8% and fast-tracking new listings. The index currently has 52 members with weights limited to 10%.
Cboe Lists for Trading Four Active Non-Transparent ETFs from Invesco
Cboe Global Markets, Inc., a market operator and global trading solutions provider, today announced it has listed for trading four active non-transparent ETFs from Invesco Ltd.: the Invesco Focused Discovery Growth ETF (Ticker: IVDG), Invesco Select Growth ETF, Invesco Real Assets ESG ETF, and Invesco U.S. Large Cap Core ESG ETF (Ticker: IVLC). Unlike traditional exchange-traded funds (ETFs) which disclose portfolio holdings on a daily basis, semi-transparent ETFs, also referred to as “non-transparent” ETFs, allow asset managers to deliver their actively managed investment strategies in an ETF vehicle, without the disclosure requirements of traditional ETFs. These ETFs typically enable asset managers to take advantage of the liquidity and tax-advantage benefits of the ETF structure, while keeping their strategy hidden to protect shareholders.
Is the stock market open on Christmas Eve? Holiday and New Year’s trading hours
Mark DeCambre – MarketWatch
Wall Street is looking forward to happy holidays and a farewell to a pandemic-stricken 2021, with the last two weeks in December representing abbreviated sessions.
Equity derivatives: Amendment of liquidity classes and quotation requirements
Eurex Circular 102/20 Equity derivatives: Amendment of liquidity classes and quotation requirements
Regulation & Enforcement
Derivatives Regulator Uses Dodd-Frank Rule to Target Foreign Bribery; A first-ever enforcement action by the CFTC targeting foreign corruption lays the groundwork for cases involving other commodities traders
Dylan Tokar – WSJ
When a top official at a U.S. derivatives watchdog last year said the agency would start policing bribery by multinational corporations, defense lawyers greeted the news with disbelief. But any doubts about the Commodity Futures Trading Commission’s ability to make good on its declaration were dispelled this month, when the agency reached a $95 million settlement with Swiss energy firm Vitol for alleged misconduct stemming from bribes paid to state-controlled oil companies in Brazil, Ecuador and Mexico.
More Innovation Expected in U.S. Equity Markets
Shanny Basar – Traders Magazine
Jack Miller, head of trading at Baird, expects innovation to continue in US equity markets after new exchanges launched this year, new order types were approved and the US Securities and Exchange Commission adopted plans to modernize the market data infrastructure. In September three exchanges launched in the US – Members Exchange (MEMX), MIAX Pearl Equities and Long Term Stock Exchange (LTSE) – taking the total to 16.
Better Returns With Less Risk? Goldman Has a Basket of Stocks for That.
Jacob Sonenshine – Barron’s
Investors are always looking for the best return for the least amount of risk. And Goldman Sachs’ basket of stocks with high “Sharpe ratios” offers one possible solution.
The Sharpe ratio, developed by Nobel Prize winner William Sharpe, is defined as the ratio of a stock’s, fund’s or asset’s return (minus the risk-free rate) divided by its volatility. Goldman is using the prospective Sharpe ratio. That means they take the potential return of a stock to its average price target and divide it by the expected volatility over the next six months as reflected in the options market. The idea is to gauge how attractive a stock looks relative to the risk an investor may endure in holding it, or the risk-adjusted return.
Some Income Strategies Don’t Deliver the Goods, But NUSI Does
Tom Lydon – Barron’s
Some income strategies leave investors wanting more income and others are more trouble than they’re worth owing to high risks, poor credit ratings, and vulnerable dividends, among other flaws. The Nationwide Risk-Managed Income ETF doesn’t check any of those boxes and that’s a positive in today’s low-yield environment. NUSI can act as a complement to traditional equity and fixed income allocations, or as the ideal protective hedge for investors with heavy exposure to technology and growth stocks. The fund is a “rules-based options trading strategy that seeks to produce high income using the Nasdaq-100 Index,” according to Nationwide.
2020 Annual Trends in Futures and Options Trading
27 January 2021 • 10:30 AM – 11:30 AM ET • Webinar
This webinar will highlight the main trends in trading activity in 2020 in the global exchange-traded derivatives markets, with category and regional breakdowns as well as exchange and contract rankings.
Moderator: Will Acworth, Senior Vice President of Publications, Data & Research, FIA
(Podcast) The Crypto Rundown 89: Crypto Options Explosion
Crypto Rundown – Options Insider Network
There’s No Trade-Off Between Lives and the Economy; Some countries saved both this year—while others saved neither
Peter Coy – Bloomberg
As the plague year of 2020 lurches to a close it’s worthwhile revisiting one of the biggest policy mistakes of the pandemic—the attempt to preserve economic growth by minimizing restrictions that might hurt the economy. I wrote about that in May in a Bloomberg Businessweek cover story focusing on President Trump. “Will some people be affected? Yes. Will some people be affected badly? Yes,” Trump told reporters during a factory visit on May 5. “But we have to get our country open, and we have to get it open soon.”
*****Worth the read.~JJL